January 21, 2014 7:00 am JST

Chinese M&As reached new heights in 2013

TORU SUGAWARA, Nikkei staff writer

SHANGHAI -- The value of mergers and acquisitions involving Chinese companies totaled a record $93.2 billion in 2013 as the country's slowing economy spurred firms to seek new opportunities by venturing overseas and absorbing rivals' networks and know-how.

     That sum, from China's Zero2IPO Research, includes domestic and cross-border deals. It represents an 83.6% leap over the 2012 figure. And, roughly equivalent to 9.64 trillion yen, it surpasses the value of Japanese companies' M&A deals last year, which Recof puts at 8.45 trillion yen -- although the tabulations may reflect different standards. The number of deals also jumped 24.3% to 1,232.

     Overseas M&As made a considerable contribution to overall value, growing 30% to $38.4 billion to set a new record for the third consecutive year. That included a number of big deals such as China National Offshore Oil's $15.1 billion acquisition of Canada's Nexen and meat processing company Henan Shuanghui Investment & Development's purchase of Smithfield Foods of the U.S. for about $7.1 billion.

     Chinese companies were active at home as well, with the number of domestic deals jumping 30% to 1,094, for a combined value of over $41.7 billion, up 140%. The major Internet search company Baidu, for instance, garnered attention for its $1.9 billion acquisition of the Fujian Province-based smartphone application company 91 Websoft.

     The uptick in overseas M&A activity comes as China's gross domestic product growth falls to around 7% from the double-digit pace enjoyed in recent years, marking the end of the era when companies could count on increasing profits simply by boosting output. For many firms, the key to future survival will lie in gaining access to the resources, markets and technologies of other companies, while striving to improve quality.

     As a result, M&A activity has spread across a wider swath of the market. In 2012, seven of the 10 largest deals involved major state-owned firms vying for control of foreign natural resources such as oil and natural gas fields. But in 2013, that figure fell to just four.

     Instead, M&A activity has become more prevalent among biotech/medical, Internet and environment-related firms. In 2013, the number of deals involving biotech and medical companies surged about 50% to just over 100. The environmental technology field enjoyed a similar margin of increase with 69 deals.

     While some Chinese companies' foreign acquisitions have not gone smoothly, Zero2IPO Research foresees further gains in cross-border activity this year. Thus far in 2014, the major real estate firm Greenland Holdings has decided to invest 1.2 billion British pounds ($1.9 billion) in development projects in London, while the medical product venture Shenzhen Hepalink Pharmaceutical has announced it will acquire U.S. firm Scientific Protein Laboratories for over $200 million.

      And Chinese firms will be better positioned to finance M&A deals, as Beijing allows initial public offerings to resume this month after a 14-month freeze.